By Tiernan Ray

Analysts at Bernstein Research today offer up some suggestions for short-selling candidates in tech based on the results of past short sale candidates and a survey of buy-side investors, among which the top picks are International Business Machines (IBM), 3D Systems (DDD), Salesforce.com (CRM), and Intel (INTC), among others.

The authors, including Pierre Ferragu, Carlos Kirjner, Mark Moerdler, Stacy Rasgon, Eric Garfunkel, and Jonathan Cofsky, acknowledge 2013 was a tough year to short stocks, which mostly rose:

2013 was a tough year for shorting tech stocks, which increased 42% in absolute terms on an equal weighted basis. In April 2013, we offered five lists of short ideas, generated from different approaches. Looking back at the lists, the most effective method for selecting shorts during the period was to short the 25 (or even better 10) worst performing stocks year to date. Results from our buyside survey of short ideas were mixed, but fared well over 3 months vs. tech overall, and well for 3 months and longer vs. the S&P.

The authors write that four stocks have returned as top short picks: Salesforce, Intel, Amazon.com (AMZN), and Hewlett-Packard (HPQ).

However, the survey of buy-side investors actually turned up 336 short ideas, the authors write:

The most frequently cited ideas were IBM (17 times); DDD (15); CRM (9), INTC and TWTR (8); AMD, AMZN, HPQ and QCOM (7); and FEYE, NFLX, STX, SYMC and WDAY (6). Interestingly, IBM and DDD were cited by both long-only and hedge funds as a short idea, while CRM and AMZN were exclusively named by long-onlys. We conducted our buyside survey from February 2nd to 6th, and had 137 respondents, who collectively offered 336 short ideas – hedge funds comprised 42% of our respondents and 43% of ideas, slightly above our April 2013 and September 2012 surveys. Exhibit 4 provides a list of the top short ideas, while Exhibit 5 shows a list of all shorts cited by respondents. Additionally, we split top short picks between asset managers with principally a long- only mandate and hedge funds in Exhibits 6 and 7 respectively. Exhibit 8 compares how often the most cited shorts in our April survey were mentioned in our September survey (as a percent of total ideas to adjust for the higher response rate), Exhibit 9 shows the stocks with the largest increase or decrease in mentions since our last survey, and relative stock performance of those names. Finally, the Appendix (Exhibits 20 to 22) provides a comprehensive list of all short ideas and a summary of any accompanying rationale provided by investors.

The authors also cite the worst-performing names in the market so far this year:

We looked at the top 25 outperformers YTD in tech that may be due for a pullback as investors imbed assumptions that could prove too optimistic. As Exhibit 12 shows, the top 5 performing tech stocks as of the February 13th close are FireEye, Tableau, Pandora, Yelp and Freescale. Common themes for outperformance YTD appear to internet/social media names (Yelp, Pandora, Zynga, Facebook) and networking/security names (FireEye, Juniper, Palo Alto). We also looked at the bottom 25 performers to indentify stocks that may not have fully capitulated and to find themes that may lead investors to companies that have not underperformed as much – the top five names among this list are Infoblox, Neustar, Nic, 3D Systems and Heartland Payments (Exhibit 13). Common themes of underperformers include small technology services companies and 3D printing names.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.